THE pound continues to climb against the US dollar this morning as markets appear sceptical that the Federal Reserve will accelerate its monetary tightening in the wake of Wednesday’s stronger-than-expected US inflation data.

The pound US dollar exchange rate is currently at around $1.140, up 0.25 per cent from this morning’s opening levels, and having jumped over a cent on Wednesday.

The US dollar initially surged against the pound following the release of the latest US CPI figures on Wednesday as they revealed that the inflation rate remained unexpectedly robust, holding at 2.1 per cent in January.

Traders were quick to latch onto the data as it meant that inflation remained within the Federal Reserve’s target range of between 2-3 per cent.

This prompted USD to jump as it lent support to speculation that the Fed could hike rates up to four times in 2018.

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However these gains proved to be short lived as investors turned their attention to the accompanying US retail sales figures.

The data showed sales had unexpectedly contracted at the start of the year, while December’s reading was revised down from 0.4 per cent to zero per cent.

The sales figures caused many investors to revise their bets that there would be for four hikes in 2018 as it suggests consumers may not be able to withstand such an acceleration in monetary tightening.

Gennadiy Goldberg, an interest rate strategist at TD Securities said: “Given the weak retail sales report alongside (the inflation data), the markets are probably going to talk about stagflation, where you are getting stronger inflation but not really getting a stronger consumer.”

Meanwhile with little in the way of domestic data today Sterling largely appears to be consolidating its gains this morning.

This is largely the calm before the storm however, as markets gear up for the start of the second phase of Brexit negotiations next month.

The UK and EU will be meeting to discuss the possible terms of a transition agreement and attempting to hammer out a new trade deal, with GBP likely to see significant volatility depending on how the talks go.

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Markets are gearing up for the start of the second phase of Brexit negotiations next month